Terrence J. Byrne, Byrne Law Office, Wausau, Wis., for
plaintiffs.
Mary Bielefeld, Trial Atty., Tax Div., U.S. Department of Justice, for the U.S.

Thomas S. Utschig, United States Bankruptcy Judge.

MEMORANDUM OPINION, FINDINGS OF FACT,
AND CONCLUSIONS OF LAW

This matter comes before the Court on a motion to dismiss filed by the defendant
United States of America, Department of Treasury - Internal Revenue Service. The grounds
for this motion are lack of jurisdiction and failure to state a claim upon which relief
can be granted.

The motion to dismiss pertains to an adversary proceeding filed by the debtors, Teddy
C. and Evelyn M. Ballard, against the State of Wisconsin; the United States of America,
Department of Treasury - Internal Revenue Service (hereinafter USA-IRS); and the State of
Illinois. In the adversary proceeding, the debtors seek to have their 1985 income taxes
declared dischargeable and to have an IRS levy of wages totalling $1,283.29 declared void
as a preference. The actions against the State of Illinois and the State of Wisconsin were
dismissed pursuant to stipulations between the parties dated September 11, 1990, and
September 12, 1990, respectively. The remaining defendant, USA-IRS, has admitted that the
debtors' 1985 income taxes are dischargeable. The debtors in this action are represented
by Terrence J. Byrne, and the defendant by Mary Bielefeld.

Two issues are presented by the defendant's motion. First, whether the defendant
USA-IRS has waived its sovereign immunity in this matter so as to be subject to the
jurisdiction of this Court. Second, whether the amount seized by the USA-IRS from the
debtors pursuant to a wage levy constituted "a transfer by the debtor of an interest
in property" for purposes of 11 U.S.C. § 547 so as to present a colorable preference
claim to overcome defendant's motion to dismiss for failure to state a claim on which
relief can be granted.

The relevant facts are not in dispute and need be only briefly reviewed here. The
debtors filed for relief under Chapter 7 of the Bankruptcy Code on March 26, 1990. On or
about December 18, 1989, the defendant USA-IRS served a notice of levy on wages pursuant
to 26 U.S.C. § 6331 on plaintiff's employer, Marmet Corporation. Within the 90 days prior
to the debtors' bankruptcy filing, wages totalling $1,283.29 were levied against and were
paid over to the USA-IRS. It is this amount which the debtors allege to be a voidable
preference pursuant to 11 U.S.C. § 547.

In support of its motion to dismiss for lack of jurisdiction, the defendant asserts
that the United States has not waived its sovereign immunity in this case. The defendant
expounds at length in support of this assertion, but when its argument is reduced to the
essentials, the USA-IRS principally relies on a recent Supreme Court case, Hoffman v.
Conn. Dept. of Income Maintenance, 492 U.S. 96, 109 S. Ct. 2818, 106 L. Ed. 2d 76
(1989) and its progeny. The defendant cites Hoffman for the proposition that 11
U.S.C. § 106(c) does not constitute a waiver of sovereign immunity by a state in
preference actions, among others. Hoffman dealt in part with an action by a Chapter
7 trustee to recover as a preference an amount paid to the defendant Connecticut
Department of Revenue Services for state taxes, interest, and penalties. The Supreme Court
affirmed the Second Circuit's denial of the trustee's preference claim by concluding that
11 U.S.C. § 106(c) does not authorize monetary recovery from the states. 109 S. Ct. at
2823. The Court states "Under this construction of 106(c), a State that files no
proof of claim would be bound, like other creditors, by discharge of debts in bankruptcy,
including unpaid taxes, . . . but would not be subjected to monetary recovery." Id.

The defendant also cites Hoffman in rebuttal of a Seventh Circuit case heavily
relied upon by the plaintiff, McVey Trucking, Inc. v. Secretary of the State of Ill.
(In re McVey Trucking, Inc.), 812 F.2d 311 (7th Cir. 1987), cert. denied,
484 U.S. 895, 108 S. Ct. 227, 98 L. Ed. 2d 186 (1987). McVey involved a debtor's
preference action to recover money transferred to the Illinois Secretary of State for
prospective highway-use and flat-weight taxes. The Bankruptcy Court and the District Court
both held that they lacked jurisdiction over the Secretary under the Eleventh Amendment.
812 F.2d at 313. The Seventh Circuit Court of Appeals reversed and remanded after
concluding in a lengthy opinion that Congress intended through 11 U.S.C. §§ 106(c) and
547(b) to create a cause of action for money damages enforceable against a state in
federal court. Id. at 327. The defendant asserts that the Supreme Court's Hoffman
decision effectively overrules this holding of the Seventh Circuit in McVey.

For numerous reasons, this Court finds the defendant's reliance on the Hoffman
decision unconvincing when applied to the facts of this case. First, Hoffman is a
plurality decision which at most holds that the states cannot be sued pursuant to 11
U.S.C. § 106(c) for money damages. This holding was reached by a five-Justice combination
involving two theories, one finding that Congress lacks authority to waive the sovereign
immunity of states, and the other holding that the Bankruptcy Code's waiver provision was
not intended to waive the sovereign immunity of states. Four Justices dissented,
concluding that Congress intended § 106(c) to abrogate the states' Eleventh Amendment
immunity against money judgments. Hoffman, 109 S. Ct. at 2824-25 (Marshall J.,
Brennan J., Blackmun J., and Stevens J., dissenting). Given the fact that Hoffman
was decided by a plurality based on two separate theories, therefore, its precedential
value is quite limited.

Second, contrary to defendant's assertion in its reply brief, the Hoffman
plurality relied heavily on the strictures of the Eleventh Amendment in holding that the
states' immunity under that provision is not abrogated by 11 U.S.C. § 106(c). The case
before us involves the federal government, not a state, and thus Eleventh Amendment
concerns are inapplicable here. The Sixth Circuit Court of Appeals, in an action to avoid
a transfer to the IRS, reached this same conclusion as to the precedential value of Hoffman,
stating "[t]he case cannot be used to support a claim that Congress has not waived
the governmental immunity of the United States, absent the strictures of the Eleventh
Amendment." SeeIn re Nordic Village, Inc., 915 F.2d 1049, 1054
(6th Cir. 1990), reh'g denied, No. 89-3656, 1990 WL 143021 (6th Cir. Jan. 23, 1991)
(LEXIS, Bkrtcy library, Cases file).

Third, dicta in the Hoffman decision supports the fact that it is inapplicable
to the federal government. Examining 11 U.S.C. § 106(c), the Supreme Court states that
"[t]he language in 106(c) waives the sovereign immunity of the Federal Government so
that the Federal Government is bound by determinations of issues by the bankruptcy courts
even when it did not appear and subject itself to the jurisdiction of such courts." Hoffman,
109 S. Ct. at 2823. Although dicta, this statement is sufficient to rebut the defendant's
assertion that the Hoffman case should be expanded to apply to cases involving the
United States as well. SeeBryant v. United States (In re Bryant),
116 B.R. 272, 276 (Bankr. D. Kan. 1990); Grant v. United States (In re Simmons),
110 B.R. 72, 73 (Bankr. M.D. Fla. 1990); In re Price, 103 B.R. 989, 994 (Bankr.
N.D. Ill. 1989), aff'd, 130 B.R. 259 (N.D. Ill. 1991). In addition, the legislative
history of 11 U.S.C. § 547(b)(2), part of the preference provision at issue in this case,
explicitly states that preference actions can be maintained against the government. That
legislative history states "As provided, section 106(c) of the House amendment
overrules contrary language in the House report with the result that the Government is
subject to avoidance of preferential transfers." 124 Cong. Rec. H11097 (daily ed.
Sept. 28, 1978) (statement of Rep. Edwards), reprinted in 3 Collier on
Bankruptcy at IX-103 (Appendix Vol., 15th ed. 1990); 124 Cong. Rec. S17414 (daily ed.
Oct. 6, 1978) (statement of Sen. DeConcini), reprinted in 3 Collier on
Bankruptcy at X-29 (Appendix Vol., 15th ed. 1990). SeeHoffman, 109 S.
Ct. at 2827 n. 6 (Marshall, J., Brennan, J., Blackmun, J., and Stevens, J., dissenting).
Justice Kennedy of the Sixth Circuit Court of Appeals, in his dissent in the
aforementioned Nordic Village case, notes that "[t]his statement contains the
strongest evidence that Congress intended to waive its sovereign immunity to suit."
915 F.2d at 1061. Justice Kennedy minimizes the persuasive effect of this statement,
however, by noting that "[this statement] may only authorize bankruptcy courts to
make the avoidance determination, not order recovery from the government." Id.
This Court is not persuaded by this reasoning. The question at issue here is a threshold
one -- whether the federal government has waived its sovereign immunity so as to be
subject to the jurisdiction of this Court. In order for this Bankruptcy Court to make an
avoidance determination as to an allegedly preferential transfer to the USA-IRS, it must
first have jurisdiction over the USA-IRS as to this matter. If this Court has jurisdiction
to make an avoidance determination in a case where the federal government is a defendant,
then it has jurisdiction to order the recovery of the avoided property as well. The
emphasis here is on jurisdiction -- the threshold issue currently before this
Court. The aforementioned legislative history states clearly and unequivocally that the
government is subject to avoidance of preferential transfers. It follows, then, that this
Court has jurisdiction to determine whether recovery of the amounts transferred should be
ordered as well. "It is well settled that when the Federal Government waives its
sovereign immunity, the scope of that waiver is construed liberally to effect its remedial
purposes." Hoffman v. Conn. Dept. of Income Maintenance, 492 U.S. 96, 109 S.
Ct. 2818, 2829, 106 L. Ed. 2d 76 (1989) (Stevens, J., Blackmun, J., dissenting) citing
with approvalBlock v. Neal, 460 U.S. 289, 298, 103 S. Ct. 1089, 1094, 75 L.
Ed. 2d 67 (1983); United States v. Yellow Cab Co., 340 U.S. 543, 554-55, 71 S. Ct.
399, 406-07, 95 L. Ed. 523 (1951); Larson v. Domestic & Foreign Commerce Corp.,
337 U.S. 682, 709, 69 S. Ct. 1457, 1470, 93 L. Ed. 1628 (1949) (Frankfurter, J.,
dissenting); Great Northern Life Ins. Co. v. Read, 322 U.S. 47, 59, 64 S. Ct. 873,
879, 88 L. Ed. 1121 (1944) (Frankfurter, J., dissenting). Seealso, In re
Price, 103 B.R. 989, 995 (Bankr. N.D. Ill. 1989), aff'd, 130 B.R. 259 (N.D.
Ill. 1991). The right to make an avoidance determination would be meaningless without the
concurrent right to order, if appropriate, the recovery of that which was transferred.
Whether an order to recover transferred amounts from the USA-IRS is appropriate in this
case remains to be seen. As noted in the Nordic Village dissent, § 550 of the
Bankruptcy Code limits, in certain circumstances, the right of the trustee to recover
avoided transfers. 915 F.2d at 1061. Whether these limits apply in the present case will
need to be addressed by the parties. For present purposes, however, this Court finds the
aforementioned statement of Representative Edwards and Senator DeConcini in the
legislative history of 11 U.S.C. § 547 to be persuasive evidence that Congress, in 11
U.S.C. § 106(c), intended to waive the sovereign immunity of the federal government to
claims such as the one at issue here. SeeHoffman v. Conn. Dept. of Income
Maintenance, 492 U.S. 96, 109 S. Ct. 2818, 2829, 106 L. Ed. 2d 76 (1989) (Stevens, J.,
Blackmun, J., dissenting). Justice Kennedy's bifurcation of the right to avoid a
preferential transfer from the right to recover from the transferee in his Nordic
Village dissent is therefore unpersuasive in deciding the threshold jurisdictional
issue currently before the Court.

Fourth, defendant's assertion that three of the four Circuit Courts of Appeals which
have addressed this issue have concluded that Hoffman is also controlling precedent
as to the United States is equally unconvincing. One of the decisions cited by the
defendant applies only to state defendants and does not advocate an expansion of Hoffman
to the federal government as a defendant. SeeTew v. Arizona State Retirement
System, 873 F.2d 1400 (11th Cir. 1989). The other two Circuit Courts of Appeals have
indeed interpreted Hoffman as applying to the United States but they have done so
by merely stating the conclusion in very brief opinions without any justification for the
expansion of Hoffman whatsoever. SeePearson v. United States (In
re Pearson), 917 F.2d 1215 (9th Cir. 1990); Small Business Administration v.
Rinehart, 887 F.2d 165 (8th Cir. 1989). The one Court of Appeals that ruled against
the expansion of Hoffman to suits involving the United States did so in a well
reasoned decision with ample support for its findings. SeeIn re Nordic Village,
Inc., 915 F.2d 1049 (6th Cir. 1990), reh'g denied, No. 89-3656 (6th Cir. Jan.
23, 1991) (LEXIS, Bkrtcy library, Cases file). This Court adopts the reasoning of the
Sixth Circuit in Nordic Village in declining to expand the Hoffman decision
to suits involving the United States.

Finally, the Court notes that several other courts have limited the Hoffman
holding to cases where a state is a defendant and have expressly refused to apply it to
cases where the United States is a defendant. See, e.g., Bryant v. United
States (In re Bryant), 116 B.R. 272 (Bankr. D. Kan. 1990); Grant v. United
States (In re Simmons), 110 B.R. 72 (Bankr. M.D. Fla. 1990); In re Price,
103 B.R. 989 (Bankr. N.D. Ill. 1989), aff'd, 130 B.R. 259 (N.D. Ill. 1991).

Defendant's second ground for its motion to dismiss is failure to state a claim upon
which relief can be granted. It is unclear from defendant's memorandum in support of its
motion to dismiss which arguments it marshals in support of this second ground. It is
presumed that the assertion that the relevant funds seized in this case were not property
of the estate is offered in support of this second ground for dismissal.

Although here too defendant argues at length in support of this assertion, its
arguments can be reduced to the proposition that the IRS' levy on the debtor's wages
effected an immediate transfer of those wages to the defendant. As of the date of levy
then, the debtor allegedly had no interest whatsoever in the future wages subject to the
levy. Since the date of the levy was outside of the ninety-day preference period, the
argument continues, the wages which were seized were not a part of the debtor's estate
during the preference period and they therefore could not have been a preferential
transfer. The defendant notes that its levy on wages is a continuing levy pursuant to 26
U.S.C. § 6331(e) and notes that the fact that the wages were to be turned over
periodically (every payday) to the IRS did not prevent the IRS from obtaining full
ownership of the funds at the time of the transfer. Defendant cites two Supreme Court
cases, Phelps v. United States, 421 U.S. 330, 95 S. Ct. 1728, 44 L. Ed. 2d 201
(1975) and United States v. National Bank of Commerce, 472 U.S. 713, 105 S. Ct.
2919, 86 L. Ed. 2d 565 (1985), in support of this assertion.

This Court has reviewed the wealth of case law on this issue and notes initially that a
majority of bankruptcy courts throughout the country still hold that wage garnishments
occurring during the preference period constitute an avoidable preference. See 4 Collier
on Bankruptcy, para. 547.16 at 77 (15th ed. 1990) (citations omitted). The Court
further notes that three Circuit Courts of Appeal have addressed the issue and, on
differing grounds, found that the garnishments at issue in each case did not constitute
preferences. SeeAskin Marine Co. v. Conner (In re Conner), 733 F.2d
1560 (11th Cir. 1984); In re Coppie, 728 F.2d 951 (7th Cir. 1984), cert. denied
sub nom.Gouveia v. Hammond Clinic, 469 U.S. 1105, 105 S. Ct. 777, 83 L. Ed. 2d
772 (1985); Riddervold v. Saratoga Hosp. (In re Riddervold), 647 F.2d 342
(2nd Cir. 1981). Because this Court is bound by the Seventh Circuit precedent, the Coppie
decision and its potential applicability to the facts of the present case need to be
examined.

In Coppie, a bankruptcy trustee brought a preference action seeking to recover
wages of the debtor which were garnished within 90 days of the bankruptcy filing pursuant
to a garnishment order issued more than 90 days before the filing. After noting the great
divergence of opinion on the issue, the Coppie court relied on Indiana law and held
that the debtors retained no interest in the garnished funds. 728 F.2d at 952-53. Thus no
transfer of the debtor's property occurred within 90 days of the filing of the petition. Id.
In reaching this conclusion, however, the Coppie court emphasized the fact that,
under Indiana law, a hearing is held at which the court may order that the judgment be a
continuing lien on the future income of the debtor, i.e. continuous garnishment. Id.
at 952. The Coppie court also relied on the aforementioned Riddervold
decision of the Second Circuit in finding the Indiana statutes similar to the New York
statutes involved in that case. The Coppie court again specifically emphasized the
fact that in Riddervold, it was pursuant to court orders that the lien on
the debtor's future income was deemed to be continuous. 728 F.2d at 952.

This Court finds the facts of the Coppie case to be sufficiently distinguishable
from those of the present case to bar the application of the Seventh Circuit's holding
here. First, Coppie was based on Indiana state-law garnishment provisions, while
the current case involves federal-law garnishment provisions of the Internal Revenue Code.
Second, the procedural distinctions between the Coppie facts and those currently
before the Court are significant. The court orders establishing continuing liens on the
debtor's property, key elements of both the Coppie and Riddervold decisions,
are glaringly absent here. The IRS levy in the present case is substantially different
from a procedural standpoint than the judicial process which occurred in Coppie and
Riddervold. "Levy is a summary, non-judicial process, a method of self-help
authorized by statute which provides the Commissioner [of Internal Revenue] with a prompt
and convenient method for satisfying delinquent tax claims." United States v.
Sullivan, 333 F.2d 100, 116 (3rd Cir. 1964), citing with approvalBull v.
United States, 295 U.S. 247, 259-60, 55 S. Ct. 695, 699-700, 79 L. Ed. 1421 (1935).
While the IRS has both administrative and judicial collection powers at its disposal, the
levy authority is regarded as an administrative proceeding. See generally Wilkens
and Matthews, A Survey of Federal Tax Collection Procedure: Rights and Remedies of
Taxpayers and the Internal Revenue Service, 3 Alaska L. Rev. 269, 272-86 (1986).

Having thus distinguished In re Coppie factually from the present case, the
Court is in agreement with the majority of bankruptcy courts which have addressed this
issue. That majority has held that wages received by a creditor pursuant to a garnishment
during the preference period constitute an avoidable preference. See, 4 Collier
on Bankruptcy, para. 547.16 at 77 (15th ed. 1990) (citations omitted). Numerous
courts, in cases involving wage garnishments similar or identical to those which occurred
in the present case, have found a preference and accordingly held that the levied amounts
must be returned to the bankruptcy estate. See,e.g., Hughson v. Dressler
Motors, Inc. (In re Hughson), 74 B.R. 438 (Bankr. W.D. Va. 1987); Schlossberg
v. Finance America Corp. (In re Krumpe), 60 B.R. 575 (Bankr. D. Md. 1986); Tabita
v. IRS (In re Tabita), 38 B.R. 511 (Bankr. E.D. Pa. 1984); Button v. Noe
(In re Button), 29 B.R. 118 (Bankr. E.D. Tenn. 1983); Eggleston v. Third Nat'l
Bank in Nashville (In re Eggleston), 19 B.R. 280 (Bankr. M.D. Tenn. 1982); Evans
v. CIT Financial Services, Inc. (In re Evans), 16 B.R. 731 (Bankr. N.D. Ga.
1982); Mayo v. United Services Automobile Ass'n (In re Mayo), 19 B.R. 630
(E.D. Va. 1981); Cox v. Gen. Electric Credit Corp. (In re Cox), 10 B.R. 268
(Bankr. D. Md. 1981). These courts have found garnished wages like those at issue here to
constitute a "transfer of an interest of the debtor in property" for purposes of
11 U.S.C. § 547(b). The basis for this finding has been 11 U.S.C. § 547(e)(3). That
provision provides, "For purposes of this section, a transfer is not made until the
debtor has acquired rights in the property transferred." 11 U.S.C. § 547(e)(3)
(1988). Most of these courts have reasoned that a "transfer" of the debtor's
wages could not occur until the debtor became entitled to his wages, noting further that
the debtor has no right to wages which have not yet been earned. See, e.g., In
re Krumpe, 60 B.R. at 578-79; In re Tabita, 38 B.R. at 514-15; In re Button,
29 B.R. at 121; In re Eggleston, 19 B.R. at 284; In re Evans, 16 B.R. at
733; In re Cox, 10 B.R. at 271-72. This Court finds this reasoning persuasive and
applicable to the present case. The plaintiff here had no rights in wages which were not
yet earned and they therefore could not be "transferred" until he became
entitled to them.(2) The garnishment which occurred
on each of the five paydays within the ninety-day period prior to the bankruptcy filing
(Dec. 29; Jan. 12, 26; Feb. 9, 23), therefore, could conceivably have effected a
"transfer" of a property interest of the debtor for purposes of 11 U.S.C. §
547(b). These transfers are thus potentially voidable by the debtor if the other elements
of a preference are sufficiently established for the Court.

This Court is aware that the aforementioned decision of the Seventh Circuit in In re
Coppie also addressed the application of 11 U.S.C. § 547(e)(3) under facts similar to
those of the present case. As noted, the Coppie court held that there was no
"transfer" by the debtor of an interest in property for purposes of § 547(b).
728 F.2d at 953. It held that § 547(e)(3) does not come into play because

[A]fter a garnishment order providing for a continuing lien is entered
in Indiana, a debtor will never acquire rights in the portion of his or her wages to be
garnished in the future. Once a garnishment order has been entered by the court, the
debtor's rights in 10% of his or her future wages are irrevocably transferred to the
garnishment plaintiff.

Id. The language of this statement again emphasizes the fact that Coppie
was decided on the basis of the peculiarities of Indiana law, under which garnishments are
issued pursuant to court order. The aforementioned procedural differences between the Coppie
facts and those currently before the Court again assume significance here. Those
differences render the Coppie result inapplicable to the present case as to the §
547(e)(3) argument as well.

This Court does note, however, that if the holding of Coppie were strictly
applied, even post-petition garnishments would arguably be effective against the debtor
since the debtor "will never acquire rights in the portion of his or her wages
to be garnished in the future." Coppie, 728 F.2d at 953 (emphasis added). Coppie
further held that "[the Indiana statutes], in effect, worked a novation of 10% of the
debtor's salary." 728 F.2d at 952. This reasoning could also arguably justify
post-petition garnishments and thus circumvent the automatic stay provisions of 11 U.S.C.
§ 362. The future wages, pursuant to the novation, would be the property of the garnishor
and would never even come into the debtor's possession since, pursuant to the garnishment,
they would be paid by the debtor's employer directly to the garnishor. The automatic stay
of § 362 is "one of the fundamental debtor protections provided by the bankruptcy
laws." S. Rep. No. 989, 95th Cong., 2nd Sess. 54, U.S. Code Cong. & Admin. News
1978 at 5840 (1978), reprinted in 3 Collier on Bankruptcy at V-54 (Appendix
Vol., 15th ed. 1990). This further supports a very narrow reading of the Coppie
decision and a limiting of it to its facts, since such a clear violation of a fundamental
precept of the Bankruptcy Code could not have been intended; nor would it, moreover,
survive judicial scrutiny.

Finally, this Court is also mindful of the fact that as a bankruptcy court, it is a
court of equity. See, e.g., American United Mut. Life Ins. Co. v. Avon
Park, 311 U.S. 138, 145, 61 S. Ct. 157, 161, 85 L. Ed. 91 (1940), citing with
approvalSecurities and Exchange Comm'n v. United States Realty and Improvement Co.,
310 U.S. 434, 455, 60 S. Ct. 1044, 1053, 84 L. Ed. 1293 (1940). Considering equity
principles in light of the underlying purposes of the Bankruptcy Code, this Court is
convinced that the result it reaches is the correct one.

This case involves a conflict between two federal statutes and the purposes for which
they were enacted. The first statute, 26 U.S.C. § 6331(e), provides that "[t]he
effect of a levy on salary or wages payable to or received by a taxpayer shall be
continuous from the date such levy is first made until such levy is released under section
6343." 26 U.S.C. § 6331(e) (1988). This provision was added as an amendment in the
Tax Reform Act of 1976 and its purpose was to promote efficiency and avoid the
administrative difficulties inherent in requiring successive levies by the IRS on salary
and wages. See S. Rep. No. 938, 94th Cong., 2nd Sess. 389, reprinted in 1976
U.S. Code Cong. & Admin. News 3439, 3818. SeealsoUnited States v.
HAS, Inc., 90-1 U.S. Tax Cas. (CCH) para. 50,173, 1990 WL 54826 (D. P.R. Feb. 21,
1990).(3) The second statute, 11 U.S.C. § 547(b),
is the bankruptcy preference provision. It provides that certain transfers made by an
insolvent debtor within 90 days before the date of the bankruptcy filing (or within one
year before if the transferee was an insider) can be later avoided by the trustee. This
provision is, in a sense, a retroactive application of the automatic stay, in that it
renders certain voluntary or involuntary pre-petition transfers by the debtor of an
interest in property voidable. The purpose underlying the preference provision is twofold:
1) to discourage creditors "from racing to the courthouse to dismember the debtor
during his slide into bankruptcy"; and more importantly, 2) to "facilitate the
prime bankruptcy policy of equality of distribution among creditors of the debtor."
H.R. Rep. No. 595, 95th Cong., 1st Sess. 177-78 (1977), reprinted in 1978 U.S. Code
Cong. & Admin. News 5787, 6138. SeeHoffman v. Conn. Dept. of Income
Maintenance, 492 U.S. 96, 109 S. Ct. 2818, 2827, 106 L. Ed. 2d 76 (1989) (Marshall,
J., Brennan, J., Blackmun, J., and Stevens, J., dissenting) ("[t]he preference
provision prevents anxious creditors from grabbing payments from an insolvent debtor and
hence getting more than their fair share.")

The application of 26 U.S.C. § 6331(e) in cases such as this one gives the IRS, in
effect, a preferred status above other creditors during the 90 days prior to the
bankruptcy filing. The continuing levy concept of § 6331(e) operates to pre-date all
garnishments by the IRS against the debtor to the date of the initial levy, which in this
case happened to be outside of the ninety-day period. If the IRS had been required to
conduct successive levies on each payday of the debtor (as most other creditors would
likely be required to do), it is clear that such garnishments would satisfy the
"transfer of an interest of the debtor in property" requirement of § 547(b).(4) It is this requirement of § 547(b) upon which the
defendant's motion to dismiss currently before the Court is based. The special or
preferred status granted to the IRS by the operation of § 6331(e) against other creditors
in this case is in contravention to the aforementioned "prime bankruptcy policy of
equality of distribution among creditors of the debtor" which underlies § 547(b). See
H.R. Rep. No. 595, 95th Cong., 1st Sess. 177-78 (1977), reprinted in 1978 U.S. Code
Cong. & Admin. News 5787, 6138. As noted, 26 U.S.C. § 6331(e) was enacted to promote
administrative efficiency and convenience. When balancing the policy considerations of
administrative efficiency against that of equality among creditors in the distribution of
the debtor's estate, this Court finds the latter policy to substantially outweigh in
importance the former. Equality of distribution among the creditors of the debtor is a
fundamental tenet of the Bankruptcy Code and as such should take precedence over
considerations of administrative efficiency.

The Court therefore holds that a "transfer of an interest of the debtor in
property" for the purposes of 11 U.S.C. § 547(b) did occur as a result of the IRS
levy in this case. The aforementioned relevant statutory authority, judicial precedent,
and equity principles considered in light of the fundamental purposes of the Bankruptcy
Code compel this result. Whether this "transfer" constitutes a voidable
preference remains to be established.

Accordingly, the defendant's motion to dismiss for failure to state a claim upon which
relief can be granted is denied.

This decision shall constitute findings of fact and conclusions of law pursuant to
Bankruptcy Rule 7052 and Rule 52 of the Federal Rules of Civil Procedure.

END NOTES:

1. Defendant also cites Woodman v. L. A. Olson Co. (In re
Woodman), 8 B.R. 686 (Bankr. W.D. Wis. 1981), a case relied upon by the Coppie
court, in support of its arguments. USA-IRS' Reply Brief at 12, n.11. This Court finds Woodman
unpersuasive when applied to the present facts. That case involved six garnishments of
wages by the debtor's employer pursuant to Wisconsin law.

Service of the complaints as to four of the garnishments had occurred within 90 days of
the bankruptcy filing. The parties had agreed that the wages garnished pursuant to those
four complaints were preferences. Woodman, 8 B.R. at 686. The remaining two
garnishments were enforced pursuant to complaints served outside of the ninety-day
preference period. It was these two garnishments which the Woodman court found not
to constitute avoidable preferences. Id. at 688. Thus the date of the service of
the garnishment summons and complaint was the key date under Wisconsin law for determining
whether a preference had occurred.

Although it is true that the service of the tax levy in the present case occurred
outside of the ninety-day period, it is solely due to the concept of a "continuing
levy" -- a creature created by statute -- that no additional services of garnishment
pursuant to the tax levy occurred within the ninety-day period. The Woodman case
did not involve a statutory continuing levy. The question then arises as to how much
importance should be attached by this Court to the statutory continuing levy for purposes
of a preference determination. This will be addressed below.

2. To hold otherwise would be creating in effect a legal fiction --
in that the garnishor would be granted absolute rights in something not yet even in
existence -- future wages. There remains the possibility, moreover, that there will never
be any wages to which the garnishor's levy would attach -- since the debtor retains
the right to choose to work or not to work. If the latter option is chosen, then there
will clearly be no wages to which the garnishment order can attach and the creditor will
receive nothing. The defendant, in its Reply Brief, supports the finality of the transfer
by noting that the "[garnished debtor's employer] is liable to turn the wages over to
the Government once the levy is served." USA-IRS' Reply Brief at 13, n. 12. It is
clear, however, that the employer is liable only to the extent that the debtor
chooses to work and earn wages; if the debtor earns no wages, the employer cannot be held
liable. See generally Weisberg, Commercial Morality, the Merchant Character, and
the History of the Voidable Preference, 39 Stan. L. Rev. 3, 122 n. 501 (1986).

3. The defendant implicitly acknowledges in its Reply Brief that
administrative convenience and efficiency were the underlying purposes of 26 U.S.C. §
6331(e) when it states "[t]he fact that [the levy on wages] is established as a
continuing levy merely eliminates the need for serving additional levies." USA-IRS'
Reply Brief at 12, n. 12.

4. Again, the defendant seemingly acknowledges as much in its Reply
Brief when it states "The fact that [the levy on wages] is established as a
continuing levy merely eliminates the need for serving additional levies. Serving
additional levies would still result in an immediate seizure of the individual's interest
so that the wages would no longer be property of the debtor . . ." USA-IRS' Reply
Brief at 12-13, n. 12 (emphasis added). Although it is unclear what the defendant means by
"immediate seizure," it apparently means at the time when each successive levy
would be served. Even though characterized as immediate, each "seizure"
occurring within the ninety-day preference period pursuant to successive garnishments
served within that period would constitute a "transfer" for purposes of 11
U.S.C. § 547(b), the defendant's assertion to the contrary notwithstanding.